Noonan Questions Europe Rescue Fund Role in Running Banks

By Joe Brennan -
Nov 8, 2012

Ireland’s Finance Minister Michael Noonan questioned whether Europe’s rescue fund is best placed to run Irish banks, signaling a softening in a campaign to recover the capital injected into its financial system.

In the wake of the June 29 pledge by European leaders to break the link between governments and banks, Noonan had said he may seek to sell stakes in Ireland’s surviving banks to the European Stability Mechanism to get back some of almost 30 billion euros ($38.2 billion) spent on saving the lenders.

“There’s a question, do you think a fund in Europe that is designed as a rescue fund are really the best people to run an Irish bank?,” Noonan told lawmakers in Dublin today. “Obviously, they have no experience in running a bank.”

In all, Ireland has pledged or injected 64 billion euros ($83 billion) into its banking system and taken over five of the six biggest domestic lenders. While Noonan said today an accord on the banks would ease the burden, he also said the nation could service a debt load of 120 percent of debt to GDP, a level that assumes no relief on bank debt.

“These comments suggest that the Irish government is starting to step back from their previous policy of trying to persuade Eurozone leaders to directly recapitalize the Irish banking system,” said Owen Callan, an analyst at Danske Bank A/S (DANSKE) in Dublin, a primary dealer in Irish government debt.

Distressed Value

Ireland’s investments in the country’s banks are valued at 12.3 billion euros, including equity, preference shares and contingent convertible bonds, economist Pat McArdle said in a paper for the Dublin-based Institute of International and European Affairs, published in September.

“Unless the price being offered by the ESM was significantly above current distressed and bottom-of-the-cycle market prices, it would make much more sense for the government to seek to partner up with a private-sector trade buyer, or else simply hold on to the banks until the market has recovered,” said Callan.

Separately, Noonan today reaffirmed his intent to pursue an accord with the European Central Bank on the so-called promissory notes used to bail out Anglo Irish Bank Corp., which is being wound down by 2020.

Anglo Irish

Ireland nationalized Anglo Irish in 2009, and injected 31 billion euros into the bank and rival Irish Nationwide into the form of promissory notes. The lenders, which merged last year, use the notes to access cash from the country’s central bank, which is due to be paid back over more than a decade.

To restructure the notes, the government is considering injecting as much as 40 billion euros of notes of as long as 40 years in duration into the bank, according to a person familiar with the talks in September. The plan would avoid the Irish state having to raise at least 3 billion euros a year for the next decade to pay down the central bank borrowing.

Noonan said the deadline for an accord on Anglo Irish is March 31, when the next payment to the central bank is due.

“Obviously we’re not waiting until then,” he said. “We’re pushing for an earlier resolution on that.”